Infrastructure Spending Boondoggles

More evidence that undergoing major infrastructure spending, as President Trump proposes, would be foolish for boosting economic growth:

Performance data for megaprojects speak their own language. Nine out of ten such projects have cost overruns. Overruns of up to 50 percent in real terms are common, over 50 percent not uncommon. Cost overrun for the Channel Tunnel, the longest underwater rail tunnel in Europe, connecting the UK and France, was 80 percent in real terms. For Boston’s Big Dig, 220 percent. The Sydney Opera House, 1,400 percent. Similarly, benefit shortfalls of up to 50 percent are also common, and above 50 percent not uncommon.

As a case in point, consider the Channel Tunnel in more detail. This project was originally promoted as highly beneficial both economically and financially. In fact, costs went 80 percent over budget for construction, as mentioned above, and 140 percent for financing. Revenues have been half of those forecasted. The internal rate of return on the investment is negative, with a total loss to the British economy of $17.8 billion. Thus the Channel Tunnel detracts from the economy instead of adding to it. This is difficult to believe when you use the service, which is fast, convenient, and competitive with alternative modes of travel. But in fact each passenger is heavily subsidized. Not by the taxpayer this time, but by the many private investors who lost their money when Eurotunnel, the company that built and opened the channel, went insolvent and was financially restructured. This drives home an important point: A megaproject may well be a technological success but a financial failure, and many are. An economic and financial ex post evaluation of the Channel Tunnel, which systematically compared actual with forecasted costs and benefits, concluded that “the British economy would have been better off had the tunnel never been constructed.”